TaxTMI 
TaxTMI 
2025 (3) TMI 532
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....017, the petitioner opened Savings Bank Account No. 50100193966720 in his name at HDFC Bank, Cuttack-Puri Road Branch, Bhubaneswar. Since opening the aforementioned account, the petitioner has been operating it regularly. (ii). During the course of banking transactions with the Opp. party bank, the branch manager of the said bank persuaded the petitioner to utilize the amount deposited in the savings account to earn more profit by investing it in trading through HDFC Securities, a subsidiary of HDFC Bank Ltd. (iii). Acting on the advice of the HDFC Bank officials, the petitioner invested an amount of Rs. 25 lakhs from his HDFC Bank savings account into trading through HDFC Securities on 24.12.2019 in Demat Account No. 50100193966720 (73229001) linked to his Savings Bank Account No. 50100193966720. Trading transactions under this arrangement commenced on 06.01.2020. (iv). While the petitioner was trading through HDFC Securities, in July 2023, the HDFC Bank made the petitioner's trading account/Demat account dormant on the grounds that it was not linked to Aadhaar. It is pertinent to note that the petitioner's Savings Bank Account and Demat Account were not....
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.... Savings Bank Account No. 50100193966720 for deposits and withdrawals. Thus, the action of HDFC Bank in keeping the Demat Account dormant/suspended on the plea of not being linked to Aadhaar is arbitrary, lacks legal sanction, and is therefore liable to be quashed. (iii) The petitioner further states and submits that the action of the opposite party bank in demanding the Aadhaar enrollment number to link the petitioner's bank account is a clear violation of Articles 14, 19(1)(g), 21, and 300-A of the Constitution of India. Therefore, this action is liable to be quashed. (iv) The petitioner also submits that the action of the opposite parties in making the trading app Demat account dormant/suspended under the petitioner's Savings Bank Account is contrary to the decision of the Supreme Court in K.S. Puttaswamy v. Union of India [2018] 8 S.C.R. 1. As such, the action is liable to be quashed. (v) The petitioner prays that he be allowed to operate the trading app Demat Account No. 50100193966720 (73229001) under his HDFC Savings Bank Account No. 50100193966720, maintained at the Cuttack-Puri Road Branch. III. SUBMISSIONS ON BEHALF OF THE OPPOSITE PARTIES : 4. In reply, le....
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....counts being made inactive. (vi) In view of these regulatory guidelines, the Demat Account of the Petitioner was suspended by NSDL through its circular dated 30.06.2023, and not by the Respondent Bank. Due to this suspension by NSDL, the Petitioner's request for the closure of his Demat Account and the transfer of shares to his wife's Demat Account could not be acted upon. The Bank duly informed the Petitioner about this through an email dated 22.11.2023. Additionally, the NSDL circular dated 30.06.2023 prescribes the procedure for the removal of the suspension of Demat Accounts, which mandates linking PAN with Aadhaar. In the absence of such compliance, the Petitioner's Demat Account would continue to remain suspended. (vii) It is submitted that the contention of the Petitioner that the Bank's action in not allowing him to operate the Demat Account is illegal and arbitrary, being contrary to the judgment of the Supreme Court, is incorrect. The Bank, as a depository participant, is governed by SEBI regulations and cannot be faulted for acting in accordance with such regulations. (viii) In view of the authoritative pronouncement in the case of ....
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.... allow the Petitioner's prayer rendering the Writ Petition to an academic exercise. Considering the gravity of the issue and its socio-economic importance, this Court attempts to discuss the issue in its perspective. 5. Learned counsel for SEBI ("Opp. Party No. 4") earnestly made the following submissions in support of his contentions: (i) It is submitted that no cause of action has arisen for the petitioner to file the present writ petition. Furthermore, there exists no valid ground for impleading Opp. Party No.4 as a necessary party in this matter. The petitioner's demat account is currently in "ACTIVE" status, thereby negating any basis for grievance. (ii) Opp. Party No.4 had issued a Master Circular on Know Your Client (KYC) Requirements for the Securities Market (Circular No. SEBI/HO/MIRSD/SECFATF/P/CIR/2023/169, dated 12.10.2023), which consolidates all relevant circulars and directions issued by SEBI up to 30.09.2023 to ensure an effective Anti-Money Laundering framework. The said circular outlines the KYC process applicable to all SEBI-registered intermediaries, mandating them to obtain and verify Proof of Identity (PoI) and Proof of Address (PoA) f....
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....any independent role in freezing or unfreezing the account, the writ petition is unsustainable against it and warrants dismissal. (ii) The petitioner's concerns have been rendered moot following the SEBI and NSDL circulars, which led to the unfreezing of the Demat Account on 03.06.2024. NSDL issued its Circular No. NSDL/POLICY/2023/0038 dated 21.03.2023 in accordance with the press release PR No.05/2023 issued by SEBI, on 08.03.2023 which, in turn, was aligned with the CBDT Circular No. 7 of 2022, dated 30.03.2022, which provided clarification regarding the relaxation of provisions under Rule 114AAA of the Income Tax Rules, 1962. (iii) Pursuant to SEBI's Circular and later produced FAQs, Opp. Party No.6, through its Circular No. NSDL/POLICY/2024/0071 dated 30.05.2024, issued a directive. Based on NSDL's circular, the Depository Participant (DP), HDFC Bank, unfroze the Petitioner's Demat account on 03.06.2024. It is humbly submitted that the Petitioner's demat account is currently in "ACTIVE" status and is not subject to any freeze. This makes this petition purely an academic discourse. IV. COURT'S REASONING AND ANALYSIS: 8. First and foremost....
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....sed the most profound question: "Of the many principles within man, which is the Self?" The sage smiled and only at this moment did the sage begin his true teaching. 12. While the idea of the "self" exists in Western philosophy, often in relation to consciousness, reason, and personal identity, "Swa" in Indian traditions, particularly in Hinduism, Jainism, and Buddhism, extends beyond the individual to encompass a connection with the greater cosmic order. 13. In Upanishadic texts, "Swa" is regarded as the ultimate reality, an eternal and unchanging essence that is one with Brahma (ब्रह्मा), the universal consciousness. Jainism, on the other hand, presents the self as an independent, eternal entity responsible for its own liberation through self-discipline and righteousness. These perspectives highlight that in Indian thought, the self is not merely an individual entity but an integral part of a larger metaphysical framework. This deep-rooted understanding of "Swa" shapes indian perspectives on duty, morality, and self-realization, reinforcing the idea that true fulfillment comes not just from outer perspectives but s....
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.....S. 438 (1928), described privacy as "the right to be let alone," advocating for protections against government intrusion. This idea shaped later rulings, such as Griswold v. Connecticut 381 U.S. 479 (1965), which recognized privacy in personal decision-making. More recently, legal theorist Alan Westin defined privacy as "the claim of individuals...to determine for themselves when, how, and to what extent information about them is communicated to others," [Alan Westin, Privacy and Freedom (New York: Atheneum 1967).] influencing contemporary data protection laws. 18. While the concept of "Privacy" does not truly reflect the essence of "Swa", it is important that the former is understood in light of the latter. In modern governance, the recognition of privacy as a fundamental right ensures that individuals retain control over their personal data, bodily integrity, and lifestyle choices. Just as "Swa" denotes the true essence of an individual, privacy safeguards this essence in the legal domain, preventing state and private actors from infringing upon the dignity and autonomy of individuals. By linking privacy to "Swa", one can see that privacy is not just a legal right but a deepl....
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....t the lives, liberties and estates of individuals are as a matter of fundamental natural law, a private preserve. The idea of a private preserve was to create barriers from outside interference. In 1765, William Blackstone in his Commentaries on the Laws of England spoke of a 'natural liberty'. There were, in his view, absolute rights which were vested in the individual by the immutable laws of nature. These absolute rights were divided into rights of personal security, personal liberty and property. The right of personal security involved a legal and uninterrupted enjoyment of life, limbs, body, health and reputation by an individual. xx xx xx 46. Natural rights are not bestowed by the State. They inhere in human beings because they are human. They exist equally in the individual irrespective of class or strata, gender or orientation. xx xx xx 318. Life and personal liberty are inalienable rights. These are rights which are inseparable from a dignified human existence. The dignity of the individual, equality between human beings and the quest for liberty are the foundational pillars of the Indian Constitution. S.A. Bobde, J. : ....
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....nt when it was adopted. Technological change has given rise to concerns which were not present seven decades ago and the rapid growth of technology may render obsolescent many notions of the present. Hence the interpretation of the Constitution must be resilient and flexible to allow future generations to adapt its content bearing in mind its basic or essential features. 325. Like other rights which form part of the fundamental freedoms protected by Part III, including the right to life and personal liberty under Article 21, privacy is not an absolute right. A law which encroaches upon privacy will have to withstand the touchstone of permissible restrictions on fundamental rights. In the context of Article 21 an invasion of privacy must be justified on the basis of a law which stipulates a procedure which is fair, just and reasonable. The law must also be valid with reference to the encroachment on life and personal liberty under Article 21. An invasion of life or personal liberty must meet the threefold requirement of (i) legality, which postulates the existence of law; (ii) need, defined in terms of a legitimate State aim; and (iii) proportiona....
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....tion of confidentiality but an intrusion into an individual's very sense of selfhood. The right to control one's data, therefore, becomes synonymous with the right to personal autonomy and dignity. Courts, as the guardians of fundamental rights, must ensure that legal protections evolve in tandem with these realities, safeguarding individuals from unwarranted surveillance, data misuse, and erosion of personal freedom in an age where information is power. This has been adequately accepted and explicitly mentioned in Puttaswamy (supra). 27. The Supreme Court delved into the intricate and often paradoxical nature of informational privacy. The Court recognized that personal information is both the exclusive dominion of the individual and at the same time, a crucial element in the functioning of the state, particularly in matters of security, welfare, and governance. However, this duality requires a delicate balance: while the state may require access to data for legitimate purposes such as national security, law enforcement, and public welfare, such power, if left unchecked, can easily transform into an instrument of surveillance and control. The Court cautioned against the ....
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....up a new universe for the bibliophile. The old-fashioned travel agent has been rendered redundant by web portals which provide everything from restaurants to rest houses, airline tickets to art galleries, museum tickets to music shows. These are but a few of the reasons people access the internet each day of their lives. Yet every transaction of an individual user and every site that she visits, leaves electronic tracks generally without her knowledge. These electronic tracks contain powerful means of information which provide knowledge of the sort of person that the user is and her interests. Individually, these information silos may seem inconsequential. In aggregation, they disclose the nature of the personality: food habits, language, health, hobbies, sexual preferences, friendships, ways of dress and political affiliation. In aggregation, information provides a picture of the being: of things which matter and those that do not, of things to be disclosed and those best hidden. xx xx xx 304. Data mining processes together with knowledge discovery can be combined to create facts about individuals. Metadata and the internet of things have the ability to ....
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....g devices, Internet-of-things devices, social network data and other means (Swan.2013) may result in information being gathered not just about the individual user, but about people around them as well. Thus, a solely consent-based model does not entirely ensure the protection of one's data, especially when data collected for one purpose can be repurposed for another.' [Id, at p. 4.] xx xx xx 328. Informational privacy is a facet of the right to privacy. The dangers to privacy in an age of information can originate not only from the State but from non-State actors as well. We commend to the Union Government the need to examine and put into place a robust regime for data protection. The creation of such a regime requires a careful and sensitive balance between individual interests and legitimate concerns of the State. The legitimate aims of the State would include for instance protecting national security, preventing and investigating crime, encouraging innovation and the spread of knowledge, and preventing the dissipation of social welfare benefits. These are matters of policy to be considered by the Union Government while designing a carefully structured regim....
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.... The capacity of non-State actors to invade the home and privacy has also been enhanced. Technological development has facilitated journalism that is more intrusive than ever before. 588. Further, in this digital age, individuals are constantly generating valuable data which can be used by non-State actors to track their moves, choices and preferences. Data is generated not just by active sharing of information, but also passively, with every click on the 'world wide web'. We are stated to be creating an equal amount of information every other day, as humanity created from the beginning of recorded history to the year 2003 - enabled by the 'world wide web'. [Michael L. Rustad, SannaKulevska, 'Reconceptualizing the right to be forgotten to enable transatlantic data flow', (2015) 28 Harv JL & Tech 349.] 590. These digital footprints and extensive data can be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions and hence, is valuable information. This is the age of 'big data'. The advancement in technology has created not just new forms of data, but also new methods of analysing the data and ha....
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....ensure compliance with tax laws by mandating the linkage of Aadhaar with PAN. The relevant excerpts are produced hereinbelow: "92. On the one hand, enrollment under Aadhaar card is voluntary, however, for the purposes of Income Tax Act, Section 139AA makes it compulsory for the assessees to give Aadhaar number which means insofar as income tax assessees are concerned, they have to necessarily enroll themselves under the Aadhaar Act and obtain Aadhaar number which will be their identification number as that has become the requirement under the Income Tax Act. The contention that since enrollment under Aadhaar Act is voluntary, it cannot be compulsory under the Income Tax Act, cannot be countenanced. As already mentioned above, purpose for enrollment under the Aadhaar Act is to avail benefits of various welfare schemes etc. as stipulated in Section 7 of the Aadhaar Act. Purpose behind Income Tax Act, on the other hand, is entirely different which has already been discussed in detail above. For achieving the said purpose, viz., to curb black money, money laundering and tax evasion etc., if the Parliament chooses to make the provision mandatory under the Income Tax Act, the co....
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....on may not be sufficient. Therefore, rationality of a particular measure cannot be challenged on the ground that it has no nexus with the objective to be achieved. Of course, there is a definite objective. For this purpose alone, individual measure cannot be ridiculed. We have already taken note of the recommendations of SIT on black money headed by Justice M.B. Shah. We have also reproduced the measures suggested by the Committee headed by Chairman, CBDT on 'Measures to Tackle Black Money in India and Abroad'. They have, in no uncertain terms, suggested that one singular proof of identity of a person for entering into finance/business transactions, etc. may go a long way in curbing this foul practice. That apart, even if solitary purpose of de-duplication of PAN cards is taken into consideration that may be sufficient to meet the second test of Article 14. It has come on record that 11.35 lakh cases of duplicate PAN or fraudulent PAN cards have already been detected and out of this 10.52 lakh cases pertain to individual assessees. Seeding of Aadhaar with PAN has certain benefits which have already been enumerated. Furthermore, even when we address the issue of shell compa....
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.... the tax evasions and bringing in to tax hold those persons who are liable to pay tax but deliberately avoid doing so. It would be apposite to quote the following discussion by the Comptroller and Auditor General in its report for the year 2011: 'Widening of Tax Base The assessee base grew over the last five years from 297.9 lakh taxpayers in 2005-06 to 340.9 lakh taxpayers in 2009-10 at the rate of 14.4 per cent. The Department has different mechanisms available to enhance the assessee base which include inspection and survey, information sharing with other tax departments and third party information available in annual information returns. Automation also facilitates greater cross linking. Most of these mechanisms are available at the level of assessing officers. The Department needs to holistically harness these mechanisms at macro level to analyse the gaps in the assessee base. Permanent Account Numbers (PANs) issued upto March 2009 and March 2010 were 807.9 lakh and 958 lakh respectively. The returns filled in 2008-09 and 2009-10 were 326.5 lakh and 340.9 lakh respectively. The gap between PANs and the number of returns filed was 617.1 lakh in 2009-1....
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....en PAN by linking it with Aadhaar/biometric information to prevent use of wrong PAN for high value transactions. (Emphasis supplied) 30. In Puttaswamy (supra), the Supreme Court acknowledged the judgement of the division bench in Binoy Viswam (supra) and upheld the validity of Section 139AA of the Income Tax Act, 1961 by repelling the contention predicated on Articles 14 and 19 of the Constitution of India. The relevant paragraphs are as follows: "418. In the present case, there is no dispute that first requirement stands satisfied as Section 139AA is a statutory provision and, therefore, there is a backing of law. Mr. Tushar Mehta, learned ASG had argued that not only other two requirements are also satisfied, rather these have been specifically dealt with by the Division Bench in Binoy Viswam inasmuch as these aspects were eluded to, consider, examined and the Court recorded its findings on these aspects. We find force in this submission of Mr. Mehta. Insofar as requirement of 'legitimate State interest' is concerned, he pointed out that though Nariman, J. provided for a lenient test, namely, 'larger public interest' as against 'legitimate State interest', th....
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....igins of illicit funds. One of the most common methods has been circular trading, where stocks are bought and sold repeatedly among related parties to artificially inflate prices and create a facade of legitimate gains. This practice allows black money to be converted into white through capital gains exemptions, often at the expense of market integrity and government revenue. 32. Additionally, the anonymity afforded by multiple (read: fake) PAN cards and unverified accounts has further facilitated tax evasion. Fraudulent market participants have used benami Demat accounts to conduct high-value transactions while avoiding taxation. The lack of robust verification mechanisms in the past enabled individuals to hold multiple PAN cards, which allowed them to siphon money through the stock market without detection. As a result, tax authorities often faced significant hurdles in tracing taxable income and enforcing financial transparency. 33. Recognizing these loopholes, the government introduced the mandatory linkage of PAN with Aadhaar under Section 139AA of the Income Tax Act. This measure aims to eliminate duplicate and fraudulent PANs, ensuring that every financial transaction ....
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....n of the petitioner is also a genuine one. In recent years, India's middle class has increasingly embraced the securities market, mutual funds, and various investment avenues as a means to grow their wealth. This shift has been actively encouraged by the Government and financial institutions, which have vigorously advertised investment opportunities, urging people to move beyond traditional savings methods. Campaigns promoting Systematic Investment Plans (SIPs), Equity-linked Savings Schemes (ELSS), and other financial instruments have led to a significant rise in retail participation in the stock market. Digital investment platforms and Government-backed schemes like the PM Jan Dhan Yojana and Sovereign Gold Bonds have further facilitated this transition, making investments more accessible to the common citizen. 38. However, as more people invest their hard-earned money in these financial markets and instruments, concerns about privacy and security have also surfaced. Investors are now questioning how their financial data is handled, who has access to their transaction details, and what measures are in place to protect them from potential breaches or misuse. With increased ....